The Times, They Are A'Changin
In 1964 Bob Dylan recorded his classic, "The Times, They Are A-Changin'." While Dylan wrote the ballad as a protest and an attempt to inspire change I've increasingly felt we're entering a similar time in regards to financial markets. What's been true the last 50, maybe even 100 years, is not necessarily going to be true for the next decade or two. Historically reliable relationships & correlations are breaking down and proving to have no predictive value anymore. For instance, last year we saw growth stocks, which typically outperform major stock market indexes in bull markets, turn decidedly lower well before major market indexes did. This year bonds, which usually serve to buoy an investment portfolio when stocks decline in value, have fallen in value almost as much as stocks have. And while interest rates have always moved up and down, the speed at which they've increased in 2022 has left portfolio managers with their heads spinning.
Outside the investment world I see and hear similar stories. A client mentioned that for decades they received guidance on an annual budget early in the year with the actual budget always falling in the guided range. This year? Completely below the low end of the range. Natural disasters like the Marshall Fire raced through residential communities that we previously thought were safe from such a danger. And politicians previously thought unelectable are now winning elections.
What does it mean? I believe it means we'll have to think more independently and creatively going forward. Relying on old "tried and true" relationships won't cut it anymore. We'll need to recognize that we're now in a world where "what ifs" that previously could be disregarded as impossible, or at the very least outlandish; are not outlandish anymore and laziness in thought will no longer be rewarded.